All Forum Posts by: Andrew Fielder

It's more common for institutionals to land bank than for smaller investors. That's mainly because you're speculating and institutionals have a lot more capital to 'speculate' with. A lot can happen between the time it's approved and it's completed and the benefits won't happen immediately.

Plus I honestly don't think that freeway improvements add nearly as much value as other infrastructure projects. Your best opportunity for land banking type deals in LA is to be looking at where the Metro is funding new projects. Find where the new stations are going and look for deals in the immediate area. (This is what I'm looking into right now).

Go check out the BP Podcast with Alan Glass. He invested in Santa Monica I believe, knowing that the metro is coming in and the value has gone up significantly. Even then he wasn't investing in land, he invested in multi family which was slightly cash flow positive but I don't think by much. Last thing you want is to buy a piece of land that's costing you money and then the economy goes into recession and you're either stuck with it or have to sell at a loss.

While the economy is looking good in America. Not so much Globally. The Global economy is volatile right now. A lot of foreign countries and institutions hold US debt so when interest rates go up it impacts their ability to pay. China has it's problems and investors are scrambling to get their money out of the country into established and transparent markets. Right now if you ask most commercial agents where they think the real estate market is in the cycle right now they would say Peak. There's many indications on this and I won't go into all the details on this post.

Core Plus is a very popular target property as investors can hold the property through a cycle ie. a recession and then have options on the upside of a cycle. Retail is all the rage right now but its performance is highly correlated to the consumer market. Office is by far the best defensive asset to buy when looking at any major city like LA. The institutionals are happy to buy at record prices as long as they have major tenants (government and multinationals) with long term leases ie 7+ year WALE in high quality buildings.

Also when interest rates go up, cap rates have to go up so looking forward, somethings gotta give and that's when we'll have a recession.

9 times out of 10 in strong residential markets like California residential will be the highest and best use but it depends on your strategy. Some investors prefer the holding income. I've worked on smaller and larger development projects and can tell you if you don't have a lot of cash to outlay or experience doing this then selling with development approval is probably the best route to go. Let me know if you have any questions.

Read Commercial Real Estate Investing by Dolf De Roos. Best book I've read on commercial investing.

@Abhishake Chhibber You should allocate Capex reserve for major repairs not just deferred maintenance. 10% is standard $5,460. I would also allow for vacancy but depends on the current leases. So NOI on that with CAPEX allowance would be $34,127 with a 7.6% Cap rate. As Patrick said you need to look at market cap rates but also you need to look at market rents. They might be overpaying in rents you just need to find out if that's right. 

It's very hard to tell by just the limited info to work off of but just looking at your location looks like your pretty far out of the main Washington Metro area so I would be doubtful that you would see much appreciation. I would probably aiming closer to the 10% mark. The part I'm struggling with is financing. $28,000 seems low unless your talking about interest only then it seems high.

So let's assume 80% financing 20% equity. $360K @ 20 year fully amortized is $28,510 annually. So assuming you have a CAPEX reserve your before tax cash flow is $34,127-$28,510=$5,617. Assuming again that you've put 20% equity then your ROI is 6.2% ($5,617/$90,000). That is 6.2% before tax so it's not that great of a return under a more traditional financing structure. You need to double check your Debt Service amount because that doesn't add up to me.

Is it owner financing or partial carry back? Most banks will only lend 80% of the acquisition price or appraised value (whichever is lower) so curious to where the other 20% would be coming from. 

@Hugh Hartwig first understand the zoning and what you can build on the lot. Secondly without a development approval you have nothing... it's just a vacant lot that you might or might not be able to build something on so it's going to be hard to pitch this as a development site without any type of plans from an architect. See if the seller is willing to spend the money on getting some renders for a commercial development on the one lot and then another version that includes the gas station. Then you have something,,, sort of. Developers aren't very creative (they mostly care about $$) which is why they hire architects to create their idea so they can visualize it. If you have renders then you can pitch it as a development site. Just be cautious of the gas station and trying to pitch that with your site because there will be significant remediation costs involved to be able to build on it.

In terms of contacting these buyers. The rule is 2 either side and 1 across the road. You need to start to ring ring for the bling bling. Start by calling the neighboring owners (2 either side) and the ones across the street (1 across the road). Then work your way out from there. Yes also a good idea to call all the local business owners in the city and then work your way out. It can be hard to find the land owner names but there a are a lot of posts on BP that could be helpful in that regard.

The CVS's and Walgreens prefer not to develop there own sites but will if they have to. That's because they don't want to take on the construction risk and initial capital outlay. If they do then they sell and leaseback. 

@David M. Have you thought about just asking the selling agent if you can do that? There's nothing that says you can't ask these questions to the selling agent and get their advice. I honestly don't think you need a buyers agent for a small commercial property. You will probably have to pay an acquisition fee as commercial agents don't like to share fees on the sell side. So for what I assume is a smaller commercial transaction ie. less than $5M you don't need one.

Joel raised the same point I was going to bring up. If it's just the property and not the business that's for sale there will be something in the lease that talks abut parking. If there's 20 parking spaces currently and in the lease it states a minimum of 5 spaces must be allocated to Jiffy Lube then it's probably fine. However it's all dependent on the lease. I'm sure most attorneys would be able to give you the right advice but obviously a real estate lawyer covers all your bases. If you trust your attorney and they're confident they can handle it you're probably fine.

*Commercial Real Estate Investing by Dolf De Roos

Hey Austin. Was scrolling through the forums and saw this. I can relate to what you're thinking. I too am an analyst for cbre but want to start investing in commercial. Two books that have really helped me understand what I need to do to make it happen are 1) Commercial Real Estate Investing by Dola De Roosevelt 2) Commercial Mortgages 101 by Michael Rinehard

Personally I feel in OC with the demand for residential there's some good opportunities to acquire commercial property with development upside down the track. What are your thoughts?

If you're just starting off. Networking is probably the best thing you can do. Talk to anyone in real estate with an accent and find out where they're from. Chances are they will have friends and family in their country of origin. It's a little tougher right now because the US dollar is strong compared to other currencies so you will find less small to medium institutions looking to invest in the US. Connect with anyone who is Chinese. A lot of investors are looking to get their money out of China and invest in real estate. I'm currently working with cbre in Sydney and it's a very similar story. Unfortunately most of the investors I work with are looking for very large deals ie. $20M+. Where exactly are these opportunities located? Are these development opportunities you're talking about?